Institutional Shareholder Services Inc. (ISS) and Glass Lewis have issued their Canadian proxy voting guidelines for the upcoming proxy season.
The ISS updates (ISS Updates) are applicable to shareholder meetings of TSX and TSX-V issuers held on or after February 1, 2015. This year ISS addresses the following key issues: the independence of former CEOs, advance notice provisions contained in policies and bylaws, the approval of private placements and the adoption or amendment of articles and bylaws.
The Glass Lewis 2015 Proxy Paper Guidelines address majority voting policies, shareholder rights plans, advance notice policies, "one-off" awards that form part of executive compensation and director performance and evaluation.
ISS and Glass Lewis recommendations can have a substantial effect on the outcome of shareholder meetings, particularly for issuers with a significant institutional investor shareholder base. Issuers are encouraged to review the ISS Updates and the Glass Lewis Proxy Paper Guidelines with their advisors and legal counsel to prevent any potential negative voting recommendations at their upcoming meetings.
The ISS Updates
Independence of Former CEOs. ISS has amended its criteria for determining independence of directors by introducing a five-year cooling-off period for former CEOs. Five years after the date of a CEO's retirement, an assessment as to independence will be made on a case-by-case basis. A CEO may then be considered independent unless there is another relationship with the issuer or management that would reasonably be expected to interfere with the exercise of his or her independent judgment. In addition, ISS currently recommends withholding voting for a former CEO who is a member of the audit or compensation committee of a TSX-listed issuer. This recommendation has also been amended to recommend withholding voting for a former CEO who has served as CEO within the past five years.
Advance Notice Requirements. ISS continues to recommend voting on a case-by-case basis on proposals to adopt advance notice provisions in a bylaw or board policy. However, this year ISS has identified problematic features of such policies or bylaws in light of the general purpose of advance notice requirements, which is to prevent stealth proxy contests, provide a framework for shareholders to nominate directors within a reasonable timeframe and provide sufficient time for shareholders to make informed decisions about nominee directors. Potential problematic provisions identified by ISS include:
- where notice of an annual meeting is given not less than 50 days prior to meeting, imposing a notification timeframe of less than 30 days prior to the meeting for shareholders wishing to nominate directors. In addition, no maximum notice period should be imposed. Previously ISS referenced a maximum time period of 65 days. Specific provisions apply where notice of an annual meeting is given less than 50 days before the meeting or where notice is given in respect of a special meeting of shareholders;
- the board's inability to waive all sections of the advance notice provisions;
- a requirement that a proposed nominee director deliver a written agreement to comply with all company policies and guidelines that are applicable to directors;
- a provision that restricts the notification period to that established for the original meeting in the event a meeting is adjourned or postponed;
- a provision requiring disclosure that exceeds that required by a dissident proxy circular;
- a provision that the corporation will not be obligated to include any information provided by a dissident director nominee or nominating shareholders in any shareholder communication; and
- any other feature of the advance notice provisions determined to have a negative impact on shareholder interests.
ISS has also introduced a new recommendation regarding unilateral adoption of advance notice provisions by directors. It recommends withholding from voting for individual directors, committee members or the entire board where an advance notice policy or bylaw has been adopted by the board but is not included on the voting agenda for shareholder approval at the next meeting. This reflects ISS's view that the right of shareholders to nominate potential directors is a fundamental one that should not be amended unilaterally by the directors without shareholder approval.
Private Placements. ISS continues its recommendation to vote on a private placement issuance on a case-by-case basis, but indicates it recommends voting for a private placement transaction if it is expected the company will file for bankruptcy or has going concern issues. More detailed guidance has been added to address issuers that are undergoing serious financial issues and require immediate financing to continue as going concerns and issuers that require private placement approval for other financing purposes.
Adoption or amendment of articles or bylaws. ISS will generally oppose a proposal to adopt or amend articles or bylaws if the complete articles or bylaw is not included in the meeting materials or referenced for ease of location on SEDAR.
Glass Lewis 2015 Proxy Paper
The principal amendments introduced in the Glass Lewis 2015 Proxy Paper are as follows:
Majority Voting (TSX). Effective June 30, 2014, the TSX will require that all TSX-listed uncontrolled companies adopt a majority voting policy. As a result of this new rule, Glass Lewis has amended its proxy guideline to recommend that shareholders withhold votes for governance committee members where a company has not adopted a majority voting policy.
Shareholder Rights Plans. Greater guidance is provided on how Glass Lewis analyzes shareholder rights plans. It will consider supporting a plan where:
- the trigger threshold is not unreasonably low (less than 20 percent); and
- the qualifying offer clause has the following attributes:
- the offer is not required to be all cash;
- the offer is not required to remain open for more than 90 business days;
- the offeror may amend the offer;
- there is no required fairness opinion;
- there is a low to no premium threshold; and
- material provisions of the plan may not be amended at the directors' discretion without shareholder approval.
Advance Notice Policies. Glass Lewis will support reasonable advance notice policies that are not unduly restrictive for shareholders. The 2015 Proxy Paper Guidelines continue a time period for a nominating shareholder to provide notice of not less than 30 days' notice or greater than 70 days prior to the meeting. Glass Lewis may also consider recommending shareholders do not support advance notice policies that do not provide for the time period to start again in the event of an adjourned or postponed annual meeting.
"One-off" Awards. The Glass Lewis updates provide guidance on awards granted to executives that fall outside an issuer's standard incentive plans. While it is Glass Lewis's view that shareholders should generally be wary of such "one-off" arrangements and incentive plans should be re-designed if not providing adequate incentives, additional awards may be appropriate depending on the circumstances. If additional awards are granted, disclosure of such awards and how they affect regular compensation should be provided.
Directors. Glass Lewis has provided additional guidance on directors with poor performance records at other issuers where they have served as directors or executives. The updates also recommend that routine director evaluation be preferably performed by an external firm.
Copies of the guidelines can be accessed below.
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